There are construction subcontractors experiencing challenges when looking for business financing. Most banks are not eager to finance this industry because of the financial difficulties caused by the implosion of the real estate market a few years back. Recently, construction subcontractors have been doing fairly well and have acquired solid clients and reliable contracts.
The Challenge -Slow-Paying Clients
Construction subcontractors face financial challenges because of having tight cash flows. Some clients can take up to 60 days to complete payment. During that period, the contractor needs to pay suppliers and employees to keep the business afloat. The delay puts a strain on cash reserves as most companies find it impossible to wait that long for payment. This challenge can quickly be resolved by construction factoring.
A Solution- Finance Receivables
When used well, financing receivables improves cash flow and eliminates cash shortages due to slow-paying customers. Here, your company partners with a construction factoring company that funds your invoices when work is completed. This means you have access to working capital to keep running the business.
Qualifying for construction factoring is simple and easier compared to getting a traditional business loan. The first and vital qualification is for your general contractors and commercial clients to have good credit since your invoices serve as collateral for a transaction. Your company should not be bonded, needs to run well, and should be free of lien invoices.
Why The Company Should Not Be Bonded
Construction factoring companies cannot work with a business with a surety bond for a project they intend to finance, as bonding companies typically have a lien on the accounts. Therefore, a factoring company cannot buy receivables hindered by liens. However, it is possible for factoring companies to work with subcontractors who work for general contractors with their surety bond.
Advantages of Construction Factoring
There are several benefits of factoring construction receivables. The qualifications are easy, and you get finance to grow your business. You can finance as many invoices as possible if they meet the company’s factoring requirements, making receivables financing a great solution to any subcontractor facing a cash flow shortage from slow-paying clients.
If your construction company is facing the challenge of slow-paying clients, reach out to Signal Peak Commercial Capital for financial assistance to help grow your business.